MAYBANK Investment Bank Bhd Research has maintained its buy call on Hong Leong Bank Bhd (HLB).
However, the research house revised the target price to RM15.10 from RM17.40 set earlier, on a lower price-to-book value (PBV) of 1.1 times against 1.2 times previously.
“With its strong asset quality (gross impaired loan ratio of 0.8%), liquid balance sheet (loan-to-deposit ratio of 85%), strong capital position (common equity tier 1 of 14% post-regulatory release), HLB is a safe harbour in such volatile times,” it said in a note today.
Nevertheless, Maybank IB Research said it had raised its credit cost estimates and cut the HLB’s 18%-owned associate company in China — Bank of Chengdu’s (BOC) earnings growth, thus lowering HLB’s financial year-end June 30, 2020-2022 estimates (FY20-22E) earnings by 5-6%.
“BOC’s operations were affected by the China lockdown in January and February, but operations are resuming some level of normalcy from now on,” it said.
Meanwhile, AmInvestment Bank Bhd has also maintained its buy call on HLB with an unchanged fair value of RM15.90 per share.
“This is based on FY21 return on equity of 9.7% leading to a P/BV of 1.1 times, and we make no changes to our estimates,” it said.
AmInvest said it understood that the six-month moratorium would not cause the bank’s impaired loan ratio and provisions to rise, as there will be no deterioration in the staging of loans during this period.
“In view of the moratorium that will be granted for six months from April 1,2020 with payments resuming from Oct 1, 2020, with the group’s financial year-end in June, FY20 credit cost is likely to remain stable,” it said.
It also said the bank has minimal loans exposure to the oil and gas sector at RM580 mil (0.4% of total loans) and only RM217 mil of loans to this segment have been identified as heavily impacted by lower oil prices.
“Meanwhile, the bank has no loan exposures to airlines. Its loan exposure to the more vulnerable sectors, which include tourism and hotels, is RM 2.4 bil (less than 2% of its total outstanding loans),” it said.
On tourism and hotels, the group has a loan exposure of RM396 mil, it added. — April 2, 2020, Bernama
